Phelps Staffing, LLC v. C.T. Phelps, Inc.

• Citation: 740 S.E.2d 923
• Decision Date: 16 April 2013
• Docket Number: No. COA12–886.,COA12–886.
• Parties: PHELPS STAFFING, LLC, Plaintiff, v. C.T. PHELPS, INC. and Charles T. Phelps, Defendants.
• Court: Court of Appeal of North Carolina (US)

740 S.E.2d 923

PHELPS STAFFING, LLC, Plaintiff,

v.C.T. PHELPS, INC. and Charles T. Phelps, Defendants.

No. COA12–886.

Court of Appeals of North Carolina.

April 16, 2013.

Appeal by plaintiff from order entered 3 April 2012 by Judge Howard E. Manning, Jr. in Franklin County Superior Court. Heard in the Court of Appeals 29 January 2013.

Harris & Hilton, P.A., Raleigh, by Nelson G. Harris, for plaintiff-appellant.

Edmundson & Burnette, L.L.P., Oxford, by J. Thomas Burnette and James T. Duckworth, III, for defendants-appellees.

North Carolina Justice Center, by Carol Brooke, amicus curiae.

HUNTER, ROBERT C., Judge.

Plaintiff-appellant Phelps Staffing, LLC (“plaintiff”) appeals from the trial court's order granting summary judgment in favor of defendants-appellees C.T. Phelps, Inc. (“CTP, Inc.”) and Charles T. Phelps (collectively “defendants”) on three causes of action: (1) tortious interference with contract; (2) conversion; and (3) unfair and deceptive trade practices pursuant to N.C. Gen.Stat. § 75–1.1.¹ Plaintiff's arguments on appeal address only the first and third claims. After careful review, we affirm the trial court's order.

Background

The history of the parties and their prior litigation need not be recounted here as it has been well documented by this Court in Phelps Staffing, LLC v. S.C. Phelps, Inc., ––– N.C.App. ––––, 720 S.E.2d 785 (2011). The facts pertinent to this appeal may be summarized as follows. Plaintiff and CTP, Inc. are both North Carolina corporations engaged in the business of providing temporary labor to clients. In December 2008, CTP, Inc. began competing with plaintiff for plaintiff's existing clients. CTP, Inc. was successful in acquiring several of plaintiff's clients and convinced these clients to fulfill their temporary labor needs through CTP, Inc. rather than through plaintiff. To meet the needs of its new clients, CTP, Inc. recruited some of plaintiff's employees and allowed them to keep the same or similar contract labor positions with the clients; a process plaintiff describes as “flipping” employees.

In 2009, in an attempt to thwart CTP, Inc.'s competition, plaintiff began requiring employees to sign a noncompetition agreement effectively prohibiting plaintiff's employees from leaving plaintiff's employment to work directly for plaintiff's clients as an employee of that corporation or to work indirectly for plaintiff's clients through another temporary staffing business. The agreement plaintiff required its employees to sign reads as follows:

In consideration of [Phelps Staffing] utilizing and placing Employee with a company customer, during the term of Employee's employment with [Phelps Staffing] and for a period of twelve (12) months from the voluntary or involuntary termination of Employee's employment with [Phelps Staffing] for any reason whatsoever, with respect to any Company customer whom Employee provided services for or was placed as a temporary worker with (“Company Customer”), Employee will not[:]

(a) discuss or accept employment similar to the services or work Employee performed for such Company customer;

(b) accept employment from, or contract with, any individual, partnership or company for placement (as a temporary work or permanent hire) of Employee with a Company Customer for the provision of services similar to the services or work performed for such Company Customer; or

(c) enter into any contract with a Company Customer for performance of services similar to the services performed by Employee for such Company Customer while employed by [Phelps Staffing].

In summary, the agreement provides that during an employee's employment by plaintiff, and for a period of one year after the voluntary or involuntary termination of employment with plaintiff, the employee will not discuss or accept employment at plaintiff's clients where the employee had been placed for work by plaintiff. Plaintiff admits that its primary purpose in requiring job applicants to execute the noncompetition agreement was to prevent its employees from working for CTP, Inc. or for other competitors at plaintiff's clients.

Plaintiff alleges that sometime between 2 October 2010 and 12 October 2010, CTP, Inc. “flipped” a number of plaintiff's employees that had been placed by plaintiff at facilities in North Carolina, Georgia, and Virginia that were operated by plaintiff's clients, including Hoover Treated Wood Products, Inc. (“Hoover”). Each employee that was flipped completed an application for employment with CTP, Inc., and plaintiff's clients acquiesced to the change in employment by their temporary workers. Some of the applications for employment with CTP, Inc. submitted by employees in Virginia are dated 4 October 2010. Plaintiff contends, however, that these applications were received by CTP, Inc. on 11 October 2010 and were altered to appear as though they were completed on 4 October 2010. Plaintiff further alleges that CTP, Inc. then improperly billed Hoover and another client for work performed and completed by temporary workers while the temporary workers were still plaintiff's employees. The billing covered the week of 4 October 2010 through 10 October 2010. Hoover paid CTP, Inc. for this work. Plaintiff alleges its damages resulting from the improper billing totaled $5,267.12.

On 16 November 2010, plaintiff filed the underlying action against defendants. Plaintiff alleged tortious interference with contract against defendants for inducing plaintiff's former employees to violate the noncompetition agreement. Plaintiff alleged that defendants' billing of Hoover for work performed by plaintiff's employees amounted to conversion. Plaintiff also alleged that defendants' conduct amounted to unfair and deceptive practices and acts in violation of N.C. Gen.Stat. § 75–1.1.

The trial court granted summary judgment in favor of defendants concluding that the noncompetition agreement signed by plaintiff's employees was “unconscionable, void and unenforceable as a matter of law and public policy [.]” The trial court also granted summary judgment on plaintiff's claim for conversion concluding that the alleged improper billing did not amount to conversion. Lastly, the trial court concluded that plaintiff's unfair and deceptive practices claim necessarily failed because the claim was based on the claims for tortious interference with contract and conversion, on which the trial court granted summary judgment in favor of defendants. As for plaintiff's claim for $5,267.12 in damages resulting from CTP, Inc.'s billing, the trial court “recommend[ed]” that defendants either pay the amount to plaintiff or that plaintiff institute a separate civil action to recover the damages. Plaintiff appeals.

Arguments

We review de novo the trial court's ruling on a motion for summary judgment. In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008). Summary judgment “is appropriate only when the record shows that ‘there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law.’ ” Id. (quoting Forbis v. Neal, 361 N.C. 519, 523–24, 649 S.E.2d 382, 385 (2007)). “All facts asserted by the [nonmoving] party are taken as true ... and their inferences must be viewed in the light most favorable to that party[.]” Dobson v. Harris, 352 N.C. 77, 83, 530 S.E.2d 829, 835 (2000) (internal citations omitted).

A. Noncompetition Agreement

“[R]estrictive covenants between an employer and employee are valid and enforceableif they are (1) in writing; (2) made part of a contract of employment; (3) based on valuable consideration; (4) reasonable both as to time and territory; and (5) not against public policy.” United Laboratories, Inc. v. Kuykendall, 322 N.C. 643, 649–50, 370 S.E.2d 375, 380 (1988). It is the last of these elements that is at issue in this case: whether the noncompetition agreement Phelps Staffing required its employees to sign is unenforceable as a matter of public policy.

As defendants contend, our caselaw disfavors noncompetition agreements which hamper an individual's right to earn a livelihood unless the restriction protects a sufficient countervailing interest of the employer. See Starkings Court Reporting Services v. Collins, 67 N.C.App. 540, 541–42, 313 S.E.2d 614, 615 (1984). The right of an employer to protect itself from competition must be balanced against “undue hardship” on the employee:

[E]ven where there is an otherwise permissible covenant not to compete: [T]he restraint is unreasonable and void if it is greater than is required for the protection of the promisee or if it imposes an undue hardship upon the person who is restricted. Owing to the possibility that a person may be deprived of his livelihood, the courts are less disposed to uphold restraints in contracts of employment than to uphold them in contracts of sale.

Id. (quoting Wilmar, Inc. v. Liles, 13 N.C.App. 71, 75, 185 S.E.2d 278, 281 (1971)) (emphasis added) (second alteration in original).

In Electrical South, Inc. v. Lewis, 96 N.C.App. 160, 165, 385 S.E.2d 352, 355 (1989), this Court noted that determining whether a noncompetition agreement offends public policy requires us to consider “ ‘the right of the employer to protect, by reasonable contract with [its] employee, the unique assets of [its] business, a knowledge of which is acquired during the employment and by reason of it[.]’ ” Id. (quoting Kadis v. Britt, 224 N.C. 154, 159, 29 S.E.2d 543, 546 (1944)). We have recognized such unique assets to include customer contacts and confidential information. Id. However, when such proprietary interests of the employer are absent and “the effect of a contract ‘is merely to stifle normal competition, it is ... offensive to public policy ... in promoting monopoly at the public expense and is bad.’ ” Starkings, 67 N.C.App. at 542, 313 S.E.2d at 616 (quoting Kadis, 224 N.C. at 159, 29 S.E.2d at 546).

In Starkings, we concluded that the noncompetition agreement at issue was...